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The Tragedy of Annuitization

Ben Heijdra (b.j.heijdra@rug.nl), Jochen Mierau and Laurie S. M. Reijnders

No 3141, CESifo Working Paper Series from CESifo

Abstract: We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.

Keywords: longevity risk; risk sharing; overlapping generations; intergenerational transfers; annuity markets (search for similar items in EconPapers)
JEL-codes: D52 D91 E10 J20 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (11)

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